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A Bond Contrarian Scours the Globe for Value

We sit down with Jack McIntyre, comanager of Silver-rated Legg Mason Brandywine Global Opportunities Bond.

Morningstar Advisor, 08/21/2013

This article originally appeared in the August/September 2013 issue of MorningstarAdvisor magazine. To subscribe, please call 1-800-384-4000. 

1 How did you become a portfolio manager at Brandywine Global?
I was in the role of a strategist for a number of years. Most strategists at some point in their career want to actually put their ideas to work and put real capital to work.

2 Your team at Brandywine Global has been together for more than 15 years. How do you make that dynamic work?
We don’t take the superstar approach to management. We all have different skill sets, and there are days when we aren’t all having a group hug. We are all in the same church, but sometimes we are sitting in different pews.

3 Is the so-called “great rotation” overhyped?
I don’t think we are going to see it. Our kryptonite is inflation. If you show me where there is inflation I am going to show you a challenging environment to make money in fixed income. I don’t see inflation.

4 What’s behind the fund’s significant overweight to Mexico?
It is part of a broader strategy of reallocating some of our capital. Companies are moving production out of Asia and more toward North America and Mexico, in particular. If [Mexico] can bring in foreign capital to its energy industry it would be a game changer.

5 The fund has long been light on exposure to Japan, a big index component. What gives?
Japan highlights what I call our index-agnostic approach. We don’t find any compelling value in [Japan]. If you look at Japan when it comes to growth, it doesn’t have a lot of levers to pull right now. It has a massive budget deficit.
It has a shrinking population. Japan made a mistake in the early 1990s. It didn’t break the back of deflation. Now, it is buying the equivalent of $75 billion a month of [government bonds]. It is finally taking aggressive steps.

6 What parts of the market are looking overvalued to you?
We aren’t finding a lot of value in credit. Right now, there is a concern spreads may narrow in a high-rate environment. Capital will continue to gravitate toward some of the higher-yielding markets, but we are in the late stages of that. The other area where we aren’t finding compelling value is U.S. Treasuries, Japan, and the core eurozone markets.

7 How do you view risk?
Our ultimate measure of risk is avoiding permanent loss of capital. We are identifying bonds that are already trading at deep discounts to their intrinsic value. That’s a starting point. We want to identify when interest rates and currencies
are impacting the underlying economies because that starts the mean reversion that we are on the lookout for.

8 Will the Federal Reserve start to taper its purchases?
It will need to taper at some point if the underlying economy continues to improve. [Bernanke] told The Wall Street Journal, Don’t look at tapering as anything close to tightening monetary policy. That is a long ways off.

9 Is there an investing book that had a big impact on you?
Fail-Safe. The story is set back in the Cold War. It’s fictitious, but the takeaway is that you never know for sure how things will ultimately play out.

10 What investor had a big impact on you?
Sir John Templeton. Early on, he was identifying changing shifts in the global demographic.

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